Woodbury Financial Services Inc. a securities broker dealer headquartered in Oakdale Minnesota has been censured and fined $225,000.00 by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent to findings that it failed to supervise the suitability of annuities transactions placed in customers’ accounts to ensure that the transactions were complaint with FINRA rules and securities laws. Letter of Acceptance Waiver and Consent No. 2017053596502 (May 13, 2019).
According to the AWC, between June of 2013 to June of 2015, in three thousand eight hundred occasions, customers of Woodbury made additional purchases of at least $25,000.00 in their existing annuity accounts. FINRA noted that variable annuities are typically investments requiring longer term commitments from investors; the products are illiquid most of the time and can carry surrender penalties when sold prematurely. Consequently, FINRA stated that there were several aspects of customers’ additional annuity purchases that needed to be evaluated for suitability, including risks of overconcentration of customer funds in illiquid investments; the customers’ investment profile; and the customer’s needs for liquidity.
Apparently, unless the purchase of $25,000.00 or more came by way of a customer’s annuity exchange (approximately fifteen percent of the three thousand eight hundred additional purchases), the stockbrokers’ recommendations to customers were not adequately reviewed by the firm. Evidently, there were no surveillance tools like exception reports utilized by the firm to assess the additional large contributions into annuities to determine if the recommendations made by stockbrokers were appropriate. The AWC additionally stated that the firm depended on the audit of its branch as well as another procedure to evaluate when more than $50,000.00 in commissions had been paid in reference to a transactions. However, those tactics were not adequately geared towards uncovering possible unsuitable annuity additions recommended by customers.
The AWC stated that the supervision systems utilized by Woodbury governing annuity additions was ultimately deficient; it was inadequately structured to comply with FINRA rules and securities laws. The AWC revealed that there was insufficient information provided to the firm through its existing review system which precluded the firm from being able to identify transactions or patterns of variable annuity additions which raised red flags concerning unsuitability, including in situations where a large amount of the customers’ net worth had been allocated in the annuity products. FINRA found the firm’s supervisory failures in this regard to be violative of FINRA Rules 2010 and 3110 as well as National Association of Securities Dealers (NASD) Rule 3010.
